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Tuesday, 9 February 2010

The prevailing tough credit environment could lead to an increasing number of issuers withdrawing from credit rating agencies.

This is according to the regional chief of Standard & Poor's, whose service Emirates NBD recently dropped a day after the credit rating firm withdrew from Dubai Holding. "Do we expect more companies to withdraw their ratings? It could be," Jan Willem Plantagie, Managing Director of S&P Middle East told Emirates Business.

"We should not forget that we still live in a financial crisis and in such an economic environment, you will see downgrades. For us, the key thing is to maintain our analytical integrity, keep our independence and our transparency. If that means we have to downgrade companies and if that means a company is unhappy and that they would withdraw the ratings, so be it. We are insensitive to revenue loss," he said.

Debt troubles in Greece and southern Europe have triggered a retreat by investors from global emerging markets, pushing up borrowing costs around the Gulf even as the region tries to recover from the turmoil that followed Dubai World’s restructuring announcement last November.

At the epicentre of the latest turmoil is Athens, where worries about whether the Greek government can meet its debt payments without socially destabilising budget cuts are roiling markets from Wall Street to Tokyo.

As economists and officials debate whether the EU should bail out the Greeks, concerns have spread to other heavily indebted members of the union, including Spain, Portugal, Italy and Ireland.

Non-performing loans are expected to swell almost 50 per cent to nearly Dh65 billion (US$17.69bn) this year as the global economic downturn and sagging property prices take a further toll on the country’s lenders.

The rise is likely to force lenders to set aside more reserves to protect themselves.

Saudi Arabian property market may double in size by 2015 if a planned mortgage law is put into effect, NCB Capital said.

“A timely implementation of the mortgage law would further support a sustained take-off in the real estate space,” chief economist Jarmo Kotilaine said in an e-mailed report today. “We expect gradual price appreciation of some 20 percent over the next three years.”

Banks have largely avoided mortgage lending in Saudi Arabia, because it lacks a legal framework for property foreclosures. The kingdom has a shortage of housing, mainly because of indigenous population growth, Banque Saudi Fransi said in a Jan. 13 report. The law will be introduced in the next few months, Central Bank Governor Muhammad al-Jasser said in January.

A few items of note on the “fallout” front from last week’s landmark $500 million settlement between British defense company BAE, the Justice Department, and the UK’s Serious Fraud Office, over corruption charges that have plagued the company for several years.

As The Financial Times and The Guardian point out, both the financial disparity of the settlement ($400 million to the DOJ, $100 million to the United Kingdom’s SFO), as well as the fact that only the U.S. Justice Department pursued the company for its most serious offense, the al-Yamamah arms deal in Saudi Arabia, suggest that as far as enforcement of corruption goes, the DOJ is the much stronger entity.

“The Serious Fraud Office’s settlement with BAE a travesty of justice,” writes The Guardian. “As recently as Friday morning, the SFO team was still taking formal witness statements in relation to a multibillion-pound deal in which BAE sold jets to South Africa that its air force didn’t want and are hardly used. Over £100m in bribes was allegedly paid to agents, senior politicians, officials and political parties. The SFO felt it had a strong case…

..........He continued to play down concerns that Borse Dubai could sell its 28% stake in Nasdaq OMX. He said board members of Borse Dubai "have communicated to us in no uncertain terms that they're long-term holders of their position in Nasdaq OMX."

Borse Dubai holds the emirate's positions in Nasdaq Dubai and the Dubai Financial Market Co., which are expected to merge after DFM moved to buy Nasdaq Dubai for $121 million in late December. The transaction left Nasdaq OMX with a 1% stake in DFM and an $82 non-cash impairment charge. Debt-laden Dubai has been hit hard by the global financial crisis...............

Kuwaiti logistics company Agility (AGLT.KW) is negotiating with U.S. authorities to resolve an indictment accusing it of overcharging the U.S. Army $60 million on supply contracts in Iraq, Kuwait and Jordan, the company's lawyer said on Monday.

Agility, formerly Public Warehousing Co K.S.C. (PWC), was indicted by a U.S. grand jury in Atlanta in November for overcharging the U.S. Army over 41 months on $8.5 billion in contracts to provide food to soldiers in Iraq, Kuwait and Jordan.

"The company is in active negotiations and we hope this can be resolved," company lawyer Richard Deane said at an initial court hearing in Atlanta. The discussions were not conclusive, he said, and asked the court to set a briefing schedule, or a schedule of hearings to keep the judge up to date.

In Dubai, last year’s annus horribilis which combined recession, debt and a bail-out by Abu Dhabi, is provoking some serious soul-searching.

“Never has so much damage been done to so many by so few,” opined one Emirati at the time, reflecting the widespread frustration of the reputational and financial impact wrought by the miscalculation of “25/11” . On November 25 last year, the government called for a delay in repaying $26bn owed by Dubai World, a state-owned conglomerate.

The outward response, driven by officials and some local media, has been to blame the foreign press for exaggerating the emirate’s downfall in an alleged orgy of prejudice and schadenfreude.

It is an ill wind that blows no good. While petrochemical rivals such as BASF and Dow Chemical had to grapple with rising raw material costs last year, subsidised feedstock meant higher profits and increased market share for Saudi Basic Industries Corporation, the Gulf's largest listed company.

As a 70 per cent state-owned company, Sabic obtains its gas at 75 cents per million British thermal units, compared with a global average of $6.50. This enables the company's ethane-based crackers to produce ethylene, for example, at $110 a tonne, while actual production costs can reach up to $900 a ton.

Sabic also enjoys discounted prices for other feedstock such as propane and butane, says Ahmed Shams el-Din, senior equity analyst at EFG-Hermes, a regional investment bank.

Decades of political skirmishing between Kuwait's government and parliament have long stymied the country's development , but Kuwaitis now tentatively discern a thaw in the conflict.

Kuwait's parliament last week passed a $104bn four-year development plan, the first for decades, proposed by the government. The bill foresees boosting power and oil production, and several infrastructure projects. On the same day, parliament passed a long-delayed capital markets law that establishes a sorely needed stock market regulator .

The bills have been cautiously applauded by bankers and analysts. While implementation remains uncertain, many finally sense some political momentum, and the prospect of the country's petrodollars trickling into development programmes and easing stresses in healthcare, electricity supply and infrastructure.